ECONOMY

China economic growth eased slightly in Q2

Chinese growth slowed only slightly in the second quarter as the impact of the deepening trade conflict with the United States was yet to kick in, according to analysts surveyed by AFP.

China is expected to announce that the world's second-largest economy expanded 6.7 percent in April-June when it releases gross domestic product figures on Monday, a survey of 13 economists found.

That would be down 0.1 percentage point from the previous three quarters.

Economists said the months-long threat of tit-for-tat tariffs on tens of billions of dollars of trade goods between the world's two biggest economies -- which officially came into force last week -- would not have a significant impact until next year, if the row continues.

The Trump administration implemented duties on $34 billion in goods on July 6, with China immediately taking dollar-for-dollar counter-measures.

Washington raised the stakes this week by threatening to impose fresh tariffs on another $200 billion in Chinese goods, with Beijing vowing it would retaliate once again.

Exports are still a significant chunk of China's economy and the total tariffs implemented or announced by Washington target a vast range of goods, including cars, machinery, electronics and consumer appliances.

If Trump follows through with his latest threats, the US would have imposed tariffs on around half of China's total exports to the country.

Capital Economics said the cumulative impact of the measures now on the table could potentially reduce China's overall economy by 0.5 percentage points, but that the impact could deepen if the battle escalates.

With a smaller share of US imports to retaliate against, Beijing is seen ultimately as having a weaker hand.

Brace for impact

If a full-blown trade war develops, China may have to retaliate in services, investment, and by potentially erecting new hurdles for US corporations operating in China, said Liao Qun, chief economist with Citic Bank International.

"The real impact will start to show next year. And if it is a full-blown trade war, in the worst case scenario, China's GDP growth could fall below five percent," Liao said.

Tianjie He of Oxford Economics said the economic growth rate could shrink by 0.2 percentage points if the US were to go ahead with the additional $200 billion in tariffs and China retaliates.

"In addition to the impact on GDP growth, the added uncertainty is already dampening business confidence and delaying investment globally. Overall, the trade war will weigh on growth, confidence, financial markets and supply chains," He said.

The key Shanghai Composite Index has already fallen 14 percent this year amid the turbulence.

Liao added that over the short term China -- which has waged a campaign to discourage excessive credit amid fears of ballooning debt -- is likely to shift gears slightly and loosen monetary policy to keep the economic growth rate up and may offer subsidise to exporters.

Over the longer-term, the China-US trade war could spur Beijing to super-charge its current push to encourage domestic demand as a proportion of the economy, a strategy taken in part to lessen exposure to the rise and fall of global export demand.

"The best case is that the US backs off. If the US shows an intention to back off, China would definitely compromise," Liao said.